Hit the road, SOEs, and give Beijing room to move

State-owned enterprises (SOEs) should lead the way for all other major businesses and move their headquarters out of Beijing to give the capital the breathing space to tackle its notorious gridlock and air pollution, according to an economist and a mainland academic.

Cao Heping, professor from Peking University’s department of development economics, said he understood that Beijing was planning to ask all SOEs to move out of the capital but he thinks the authorities should go even further.

“Not only SOEs but non-SOEs and some government departments should move out as well,” Cao said.

A decision on the SOE exit strategy is expected in the next year or so and the move could take anywhere from three to seven years to complete, he said.

The authorities are coming under increasing pressure to tackle the capital’s abysmal air quality and transport woes as it buckles under the weight of explosive population growth.

Moving non-essential functions out of the city and replacing them with high-end, low-carbon services and industries is seen as one answer to the problem, so much so that President Xi Jinping is one of the concept’s boosters, according a Xinhua report on Feb 28.

Xi is keen to make Beijing as efficient and competitive as other urban centers like Tokyo, Singapore and Hong Kong by 2020, the deadline he has set for establishing a comprehensive well-off society in China, according to a source in contact with chairmen of Beijing’s listed companies.

Liu Ligang, chief China economist for Australia and New Zealand Banking Group Ltd., is another advocate of a big shift but he also backs relocation of non-core government functions.

“The government should use administrative means to re-route these functions. It’s all part of the process of urbanization,” Liu said.

Core issues

Cao said that “the core functions of Beijing should be the State Council, Ministry of Foreign Affairs, Ministry of National Defense, Ministry of Finance, Ministry of Education and the National Bureau of Statistics. The others are just non-core.”

The plan is in the early stages of discussion and it will take one to two years to make a decision and strike a balance between getting the biggest SOEs to move and ensuring there is still enough tax revenue and economic activity to keep the city going, he said.

Part of the equation will be to convince big firms to go.

“Take carmaker Beijing Hyundai Motor Co., Ltd., for example. It makes millions of cars each year and it’s difficult to ask it to move,” he said.

“The government should set up a system to compensate manufacturers for moving. But they should also find a way to keep essential social infrastructure like hospitals and schools because hospitals are also major contributors to taxation.”

Another problem is that the Beijing municipal government does not have control over central government SOEs so asking them to move them out would simply be a request. “It was a favor to Beijing that CITIC Group moved out of the capital city,” Cao added.

Cao said various central government departments could find suitable new homes because it “would not make much difference if these non-core departments are not in Beijing.”

He suggested that Ministry of Commerce move to Panyu in the major trading hub of Guangdong, the central bank could go to Ningbo while the Ministry of Industry and Information Technology could establish a base camp in Qingdao.

In the internet age, companies can move to smaller cities, giving urbanization a nudge along the way.

Liu said the big four banks could also decamp to the financial capital of Shanghai, home of the country’s main stock exchange.

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